About time we had some facts, Brian Easton

Children of the Poor: How poverty could destroy New Zealand’s future
Mike Moore
Canterbury University Press, $19:95,
ISBN 0 908812 67 1

In 1980 the National cabinet withdrew the government subsidy to CORSO, nominally because it had produced a film which said that there was poverty in New Zealand. Sixteen years later a National Prime Minister was arguing about what poverty is and how extensive it is, while the Treasury’s Briefing to the Incoming Government 1996 even tried to measure the extent of poverty (calling it “hardship”), although, as we shall see, not very well.

Mike Moore’s latest book (his seventh) thus has to be seen in a context in which policymakers are beginning to grapple with the issue of poverty in a way they have not for half a century. Given its timing, one may wonder to what extent Moore’s book is intended to be an alternative election manifesto to the official one of his Labour party, perhaps to push it more towards making a more explicit commitment to the poor.

The book is a polemic rather than a careful study of what we know and dont know about poverty. It uses some of the available research material to link loosely its theme that the nation is not concerned enough about the state of its children. Just how little material Moore has used is hard to judge for, despite being published by a university press, the book has no references and no bibliography and the index is erratic. Moore has an enormous heart, which generates both energy and compassion, but what he needs — what Labour needs — is a think tank to enable the use of the available research material to shape its policy thinking.

In government Labour manifestly failed to do this. Its 1988 Royal Commission on Social Policy (RCSP) turned its back on poverty, despite poverty providing historically and intellectually the foundation for social policy. Without this grounding, the fragile structures the RCSP built have sunk into a swamp and the left Labour party in opposition bereft of any basis on which to proceed.

Regrettably, Moore’s book is unlikely to offer much direction. The discussion on child poverty drifts into chapters on political correctness and civil society, finishing with a chapter on policy which veers between some general principles (with which I usually agree but he offers little on their implications), platitudes and a wishlist (involving massive increases in government spending). For instance, one may not have problems with his injunction to “accept with confidence the reality of the global marketplace” but it is not clear how this relates to two others, “raise the minimum youth wage” and “keep interest rates down”. Most readers would favour the injunction to “stop truancy” but how is it to be achieved? And what is one to make of advising the government to set up “an ethical and moral commission” to report on “slowing down and reversing the hijacking of our cultural values, our language and our institutions by those who are seeking to impose an extreme brand of political correctness on the rest of us”?

Modern poverty research begins in the early 1970s with the report of the 1972 Royal Commission on Social Security (RCSS) which, unlike the 1988 RCSP, devoted considerable space and thought to poverty issues. A number of studies followed, beginning with Peter Cuttance’s study of large families in Hamilton. This research programme was characterised by quantitative studies with a strong theoretical perspective, rather than being dominated by ideology and prejudged policy conclusions.

Poverty writing before the 1970s was largely ethnographic, describing the individual situations of the poor. The best known is John A Lee’s novel, also called Children of the Poor. Moore acknowledges the borrowing “because it is appropriate [and] real and makes the point that for too many the last 70 years have not seen much progress.” Lee’s partly autobiographical book has precipitated at least four other literary works. Erik Olssen has written a Lee biography, while Mervyn Thompson turned Lee’s novel into a play. The novel also provoked a response, Not So Poor, from Lee’s mother, Isabella. Her editor, Annabel Cooper, gives yet another account of the events in the preface. (Isabella’s memoirs were also turned into a play, produced in Dunedin.)

While there are disagreements over the facts of Lee’s childhood, the fascination is the contextual interpretation of those facts. Isabella wrote in response to Lee’s portrayal of children trapped into grinding poverty from which there was no escape. Her account is that the poor had a dignity and respectability. Ironically, Lee was able to escape, whereas his mother never did, even if she maintained her dignity.

Such questions about the consequences of poverty have been largely unaddressed in more recent poverty writing. It has been more concerned with identifying, measuring and, to a lesser extent, describing the poor.

2

At an early stage the issue was how to define poverty. The 1972 RCSS had stated that the aims of the welfare system should be:

“First, to enable everyone to sustain life and health;

“Second, to ensure, within limitations which may be imposed by physical or other disabilities, that everyone is able to enjoy a standard of living much like that of the rest of the community and thus is able to feel a sense of participation in and belonging to the community.” (Italics in original.)

In terms of the evolving international literature, the first aim was equivalent to absolute poverty and the second to relative poverty. Individuals may have enough to sustain life and health and thus be out of absolute poverty but not enough to be able to participate in and belong to their community and hence be in relative poverty.

Having conceptually defined poverty, the next step was to identify some income level which would quantify it. The eventual answer was obvious enough but some thought was given to alternatives. For instance, in Britain at the time the commonly used poverty level was based on British social security benefit levels. This had the merit of reflecting the practical experiences of people living on low incomes, derived from the reports of social workers interacting with the poor. But it had the disadvantage that the supplementary assistance regime was administratively determined, so it can be changed by political fiat.

Instead, the chosen poverty line here was the income recommended by the RCSS as the basic benefit level, now known as the BDL (or benefit datum level). The government was not obliged to follow the royal commission (and  indeed in 1991 slashed benefits far below its recommendations). From the above principles the RCSS would not have recommended a benefit level below that which it judged was required to enable the “participation in and belonging to” objective. However, given its fiscal prudence, it was unlikely to have set a benefit much above its assessment of the poverty line.

Had the RCSS chosen the right level? The RCSS had been deluged with evidence about community living standards. Its judgment was likely to be as good as, if not better than, any panel of four wise men and one woman. In subsequent years ethnographic surveys were used to test the validity of the conclusion, although they involved the converting of qualitative judgments into quantitative ones. There were only a few useful quantitative studies, most notably those by David Ferguson on the elderly in 1974 and his longitudinal Christchurch child development study from 1976. In the end the BDL seemed to be about right. (Incidentally, it is frequently stated there is no official poverty level in New Zealand. In fact various Department of Social Welfare reports in the late 1970s were tiptoeing around the notion, by implicitly using the BDL as though it were an official poverty line.)

But how to update the BDL for economic change after 1972? There has been little dispute that adjustments for inflation should use the consumers price index. The theoretical conclusion in regard to real (that is, inflation-adjusted) changes in standards of living was that the BDL should be adjusted for longterm changes in real incomes but not for the stage in the business cycle. However, the practical issue of how to do this proved irrelevant. There has been hardly any change in average real household incomes since the RCSS in the early 1970s.

The household economic survey, available from the mid-1970s, gave a distribution of household incomes, although initially the data were not of good quality. But any conclusion could be checked against other data sources — specific surveys, income tax data, synthetic data and census data. They supported conclusions that there were a lot of people below the poverty line.

CORSO got into trouble partly because it used a figure of 18% of the population as below the BDL. What the politicians did not know is that, while this was a “gee-whizz” figure to emphasise that the level of poverty was significant, the research had identified an important issue which had already been imported into policy. In the early 1970s the conventional wisdom was that the majority of the poor were beneficiaries. By the middle of the 1970s it was known that the bulk of the poor were families with children and the majority of these depended on wages. In 1976 a tax credit for parents with young children was introduced, partly in response to the findings of research into poverty.

However, the consequences of poverty were only weakly addressed. Do low family incomes damage children’s health, inhibit their learning, induce family violence and/or cause family breakdown? If the answer is “yes” (to a significant degree) this raises major issues for social policy. It is not merely that poverty would be socially unjust and lead to misery and early death (if, say, the elderly had insufficient to eat, keep warm and obtain health services). Poverty among children would compromise the longterm sustainability of a society if as a consequence they were, as adults, less healthy, less productive and more prone to violence.

As his subtitle indicates, Moore thinks so. So would many people and there are anecdotes to support their beliefs. But there is little research, for it involves an ethnographic approach combined with quantitative methods, typically with large enough samples to identify the pathology. Such studies hardly exist here (and foreign ones do not readily translate because of difficulties with income comparisons and cultural differences). Sadly, Ferguson’s Christchurch longitudinal study and a similar one in Dunedin by Phil Silva, found that collecting economic data on the family was considered unacceptably intrusive by the respondents.

3

Yet by the end of the 1970s we could be well pleased with the progress. The basic quantitative paradigm had been developed, the database was increasing and there were supportin ethnographic studies. Around that time British and Australian academics commented to me that New Zealand was a world leader in poverty research. They would not say the same today. What went wrong?

Partly it was that the momentum from the RCSS had run its course, partly that the sharp rise in unemployment in the late 1970s redirected concerns to labour market pressures. But we have also seen that the RCSP failed to tackle the issue. (Nor did the Planning Council, another consultative body not noted for innovative thinking.)

There were, however, two further complications. First, the early research had on the whole been cheap. The next stage involved greater resources, which could come only from the public purse. Second, the research required some access to the unit records of the household survey, which were available to private researchers only in a clumsy and expensive manner. (Our legislation is very protective of the security of personal statistical records, more so than most other OECD countries.)

There was one general exception. The government is well funded, even if it is unwilling to fund independent research. Moreover, a quirk of the legislation means that public servants have access to the unit records, which private researchers do not. This gave the government monopoly control over the next stage of the poverty research programme, a monopoly it chose to exercise by doing very little.

The research monopoly has some uneasy implications. When last year the impact of the government tax cuts was debated the public and commentators had to rely upon calculations done by Treasury using their TAXMOD model (the basic model for poverty research). Since Treasury officials, like everyone else, can make mistakes or use critical assumptions which are not robust to reality, we are absolutely dependent upon the quality of the model. Yet there is no independent verification.

It was possible for private researchers to do some work via the government models, but they were severely constrained by the government monopoly (even were there adequate funding, which there has not been). For instance the above description on how to calculate a poverty level did not explain how to deal with the various household compositions (say a couple with two children). This involves using a “household equivalence scale”. The one which has dominated is that set down by the Department of Social Welfare, which is based entirely on some a priori theorising and has no significant empirical content. Compared with the available empirically-based ones, it has very strong household economies of scale, making the unlikely assumption that it is very much cheaper (by almost 40%) for four people to live together than separately.

The advantage to fiscal policy of this assumption is that it downplays the cost of children in a household. Thus there are probably more children below the true poverty level than the estimates using this distorted scale conclude, with the consequence that there has been even less attention to addressing the needs of children. The government monopoly control on poverty research has saved the government billions of dollars in family assistance — at the expense of children and their parents.

I found an ingenious procedure (synthetic quasi-unit records) to get around the problem of limited access to unit records, without threatening their personal security. Last year I applied to the Foundation on Research Science and Technology (FoRST) for a grant to process them. I did not really expect the government-appointed funding committee to be enthusiastic about a project which undermined the government’s research monopoly but I was astonished by their excuse. They approached six referees. Five — including the international ones — were enthusiastic. The sixth was less so but his credibility and argument were undermined because he could not distinguish between the household survey and the population census. Neither, apparently, could the FoRST committee, because it quoted the sixth’s spurious “criticisms based on the wrong database” as the reason it could not fund the project. In the hands of such expertise is the destiny of social science research — and the poor.

4

Towards the end of the 1980s government agencies began to do some research. A couple of Treasury officials created their own poverty line, based upon a procedure which was considered outdated when the RCSS looked at it 20 years earlier. It involved valuing a minimum food requirement and then multiplying it by a number arbitrarily chosen by the officials (on salaries beyond the ken of the poor).

The food allowance was less than the one provided to prisoners (so, if you are poor steal food — if you get away with it you will be better fed, and if you get caught and jailed you will also be better fed). The multiplier was over a fifth below the one implicitly used by the RCSS, so the Treasury poverty line was extremely low by the standards of any other studies. (The officials also misrepresented research which contradicted them.) This could be put down to the  Treasury not being empirically skilled in poverty research. But, alas, the Treasury’s research, even though it was not externally refereed, appears to have been used for policy purposes, for in 1991 the unemployment benefit was cut to the exact level the research set as its poverty level.

Ignoring the research that has gone before is not confined to the Treasury. An Overview of Recent Research on Poverty in New Zealand, by the Poverty Measurement Research Group (PMRG — Paul Frater, Bob Stephens, and Charles Waldegrave) is nominally a review of New Zealand research. It cites only 69 local references in its bibliography. But the bibliography provided for the New Zealand Statistical Association by professional statistician Stephen Haslett on the somewhat narrower topic of The Statistical Adequacy of Current Monitoring of Social Welfare Benefit Levels cites double that number.

There is a habit in New Zealand of ignoring past research, treating it as a text in which the underlying text can be ignored and overwritten. Unfortunately, such practical men and women use the previous work of defunct researchers but without a thorough understanding and end up in a methodological muddle. Newton remarked that he could see further because he stood on the shoulders of giants. Standing on their toes all he would have seen was their shins.

The problem is well illustrated by the PMRG’s attempt to set a new poverty level by asking carefully selected “focus” groups what they think is an appropriate minimum standard of living. The research does not attempt to relate to earlier research and, like the Treasury, has the oddity of calling the relative poverty line “absolute”. Its methodology is the use of an ethnographic approach to derive quantitative estimates but its statistical methods are crude. The work seems deeply flawed methodologically, in ways too numerous — and sometimes too technical — to detail here. A few illustrations will have to suffice.

The PMRG makes no attempt to calculate the accuracy of estimates but eyeballs the data and tells us that the various estimates seem in agreement. Statistically, they are not. Each group provides separate minimum standard-of-living estimates for a household of one adult and two children and one of two adults and three children. It is not difficult (using fourth form algebra) to show that the proposed poverty lines are inconsistent.

Another flaw is the PMRG uses income after deducting housing expenditure. That it is a hybrid of income and expenditure is a warning that something is theoretically wrong. Having excluded housing expenditure, the mixed measure is then adjusted by a household equivalence scale which includes housing. The resulting estimate is not only a conceptual muddle but also biases up the numbers of poor, enabling the PMRG to state that housing is the major cause of poverty. It may be but the PRMG’s analysis offers no support for the proposition.

5

In any case the conclusion probably detracts from the central point that by far the largest group of the poor is children. What we really need to know are answers to questions such as: “If one had an extra $100 million how could it be best deployed to reduce poverty?” In principle we know how to answer such questions but in practical terms private researchers cannot answer them while the government maintains its stranglehold over funding and modelling access.

Where the PMRG’s analysis has been most challenged is in its definition of the poverty line in terms of a proportion (usually 60%) of median income. Any statistician knows that a statistical median (the middle income) is inelegant and clumsy to calculate and its estimators are inferior to the statistical mean (the average). Aesthetics aside (although aesthetics are not a bad test of the integrity of a theory), using a proportion of the median has a very grave defect. Like the British benefit measure rejected in the 1970s, it can be affected by policy and administrative change. For instance, suppose the government were to take income from those in the middle of the income distribution and give it to the rich. Then the median income would fall. Thus any poverty level which was a proportion of that median would fall and so the numbers below the level would fall. Using a median-based measure, the government could appear to reduce poverty by making the rich better off and doing nothing for the poor.

This possibility is not a figment of a theoretical imagination. It has been actually happening since the early 1980s — as far back as we can go. (This, incidentally, is one of the reasons why the rich have been so enamoured with the reforms of recent years, despite the economy stagnating. Reductions in their income taxes, funded by higher taxes on everyone else, has been making them better off.) The fall in the median income through time (especially relative to the mean) has been so great that the numbers below 60% of the median has been falling (despite poverty, by any sensible definition, rising). Thus a median-based poverty level can be used to establish the claim that poverty has been falling over the last 15 years.

It may not surprise readers that Roger Kerr of the Business Roundtable seized on this result, making the absurd claim that poverty has been falling during the reforms. The Treasury supports Kerr by presenting the nonsense in its Briefing to the Incoming Government: 1996, as though it were an intellectually coherent approach. (The Treasury also published a measure based on constant price basis. This is the more conventional approach and is equivalent to a poverty line which is a proportion of the BDL. However, its claim that poverty rose sharply in 1989/90 — to levels comparable to 1991/2 after the benefit cuts — is not only out of line with other studies but does not accord with any anecdote or other evidence. Given the Treasury record of poor empirical standards, its conclusion is probably an error but, given its monopoly, there is no way private analysts can check.

The PMRG has denied its median-calibrated poverty line is intended for such uses but the group itself published a table which does exactly the same thing as the Treasury. Why it bothered to use a median and get in such a muddle is a mystery. Anyone familiar with the basic paradigm would have checked the original estimate and observed that, within its margins of error, its focus groups were recommending a poverty line equal to the BDL — the benefit level for a couple recommended by the RCSS in 1972. The PMRG could have made the modest but justified claim that its exercise has been another ethnographic contribution to the improved calibration of the BDL, so supporting the view that it is a good estimate of a poverty line (and our respect for the wisdom and competence of the RCSS). Instead, when it (rarely) referred to the earlier work it misrepresented it.

6

Using data based on the work of Mary Mowbray of the Social Policy Agency (more reliable than most because she does not have a policy axe to grind), we can trace numbers below the BDL over the last 15 years. The proportion of households rose slowly through the 1980s from 10.2% in 1981/82 to 11.5% in 1988/89. In the early 1990s poverty levels jumped to nearer 15% of all households. (Proportions of people will be higher, because large households tend to be poorer.)

This pattern (which also broadly applies if some other constant price poverty level is used) tells the following plausible story. In the 1980s the constant real value of the benefit, together with the introduction of family support, moderated the effects of the deteriorating market incomes (including rising unemployment), so poverty numbers only rose modestly. However, when benefit levels and entitlements were savaged in 1991 poverty numbers rose abruptly, with a widespread increase in hardship, evidenced by enormous pressures on social welfare agencies, food banks and a host of anecdotes. Poverty levels do seem since to have come back a little since 1992/93, although they remain markedly higher than they were in the 1980s. The Treasury attributes this small reduction to the economic recovery, although its data series is behaving oddly.

I can report here some preliminary research which suggests that the fall in unemployment in the mid-1990s did lead to distributional benefits but mainly to those just above the BDL. My tentative judgement is that the fall at lower incomes is due to an easing of the stringency of benefit entitlement and the special needs benefit. What is undisputable is that the benefit cuts and other general measures have lifted poverty to a higher level in the 1990s compared with the 1980s. (There is a direct way of assessing these issues but the government agencies have been unwilling to investigate and no one else can.)

7

Note the new potentially powerful development heralded in the previous few paragraphs. It is now possible to trace changes in poverty on a year-by-year basis so we are able to improve our understanding of the dynamics of poverty. Treasury official George Barker has gone on to proclaim a “new view of the income distribution”. Unfortunately, his argument is long on rhetoric but short on results. The database is simply not there. His so-called new insights, insofar as they are valid, were well-known to past researchers, who knew they were limited by the data shortages in the way Barker is. Where they could they explored the issues. For instance, the RCSS report discusses the income pattern over a family life cycle (written by Angela Seers, a researcher whose early contribution is often overlooked).

Barker puts considerable emphasis on some results that use the income tax data base. They purport to demonstrate there is considerable mobility within the income distribution, quoting that more than a quarter of those in the bottom quintile (fifth) of tax filers are in a higher quintile a year later. (No information is provided as to what proportion of those in higher quintiles drops into lower ones.) A tax database is a administrative one and therefore subject to a number of serious problems (such as what happens to people who file in some years but not others). Barker does not discuss these issues,so it is difficult to make any sense of his results. The work is written up in a booklet Income Distribution in New Zealand. It does not meet even the most elementary academic criteria of defining its databases or discussing data problems (despite being published by the Victoria University Institute of Policy Studies). One result is mentioned in the Treasury 1996 briefing, as though it would be helpful to an incoming minister, but it even manages to misquote the statistic. (One despairs over Treasury empirical standards.)

Work by Harry Smith and Robert Templeton of Statistics New Zealand is both more professional and more enlightening. It is evident that the lowest quintiles represent low-quality income — part-time earnings, benefits, low wage-earning and the like. The conclusion is that there is considerable “churning” in the lowest incomes of tax filers, as people move through different income states such as low-waged, out of work, on a benefit, part-time work, self employed and so on. At the top of the distribution there is considerable stability.

What is being argued over is the nature of the experience of individuals. Are people in poverty trapped in poverty through most of their life? Or is it a temporary transitional phase? Barker appears to favour the second option. There are not a lot of data to go on.

Consider the following hypothetical situation. Suppose we knew the location of a family, consisting of a number of generations at all stages of the life-cycle and that it was near the bottom (on average) of the income distribution, in 1951. Forty years (or two generations) on we might look at the same family (that is, descendants of the 1951 people). Would the family still be near the bottom or would it now be evenly scattered through the distribution (or somewhere between)? If the former, the family would be trapped into a cycle of poverty, hardship, and deprivation, churning through the lower income levels, but never really escaping. If the latter, the experience would have been a temporary one, which many go through, perhaps once a generation.

This is not just a thought experiment. There exist sufficiently detailed income records of one family group which we can trace throughout the postwar era. It was near the bottom of the income distribution in 1951 and it was still near the bottom of the distribution in 1991, two generations on. This seems to support the hypothesis of households being trapped unto cycles of poverty and hardship unto the third generation.

The “family” for whom I have these good records consists of those who report themselves as Maori in the population census. Admittedly this is a family with a particular genetic and cultural heritage, but all families have their own such heritages. The Maori historical experience is very damning to the Barker thesis. He could fall back on an argument that under the new economic regime they will soon be evenly scattered through the income distribution. We shall see. (The numbers of Maori households which appear in the household survey are small so a statistician has to be careful to draw conclusions. The evidence instead points to Maori real and relative incomes having deteriorated between 1981/82 and 1994/95.)

Income dynamics are important but typically we do not have the data to explore them. The data that we have may be boringly static but we have far from fully exploited their use. Haring off after a new untestable fashion and ignoring past solid research mean that golden research opportunities have been lost and all that is seen are hairy shins.

8

What do we know about poverty that we did not know a decade ago? There is not much new, I am afraid. We have one or two tentative research hypotheses and some broad confirmation of earlier research but generally we have not made a lot of progress, except we are now able to track poverty better through time. The access to quasi-unit records remains the most promising approach for new insights, although the lack of resources to use them means new understandings will be delayed. One might also hope that in the future the ethnographic work will integrate better with the quantitative work and begin to explore issues of the causes and consequences of poverty, which are beyond the power of the existing data base.

Nor have we made much progress with new policy implications, although we can absolutely confirm that if the government cuts benefit levels and entitlements (as it did in 1991) poverty will increase. I confess amusement to a response by Kerr. He had published an article using Barker’s work in The Evening Post but the editor had rejected further serious comment so the venue of the debate had moved to The City Voice, a lively give-away Wellington paper. There I pointed out various defects in Barker’s data. Kerr’s reply largely accepted my analysis but asked plaintively what I thought about the policy conclusions he drew. The attitude is not untypical of much policy debate: never mind the facts, never mind the theory, never mind the research — what matters is the policy.

Sure, we need to be passionate and polemical about poverty in New Zealand and no doubt Kerr and Barker would claim to be just as concerned about the interests of children as Moore. But all of us need to be more informed. And if we are not, almost inevitably we will pursue policies detrimental to the interests of the poor and of children (as has happened over the faulty household equivalence scale, and may happen if the PMRG work on housing is adopted as casually as it has been constructed). The outbreak of interest in poverty in recent years reflects the consequences of ignoring poverty in the 1980s. Ignorant of and insensitive to the poor, we introduced policies which exacerbated their hardship.

Unlike the 1970s, poverty research over the past decade has not been one of New Zealand social science’s great achievements. If it made any claim, albeit a modest one, it has clumsily responded to the rise in poverty on the early 1990s, precipitated by policies which were possible only by the research neglect of the 1980s. Although they may be unaware of it, Jim Bolger, Jenny Shipley — and Moore in this book — interpret the rise through the framework largely developed by poverty research.

At a seminar on health and inequality in December 1996 Peter Saunders, an Australian — indeed world — expert on poverty and income distribution research, commented that there has been a “failure of the social policy community to be sufficiently professional in much of its work.” His point is that if analysts are unprofessional (even though they may be passionate), they leave policy open to other unprofessional mavericks. The resulting social policy will be dominated by the ideology and objectives of the rich (as indeed has happened here in recent years). The interests of the poor and our children will be — and, as Moore points out, are being — neglected.

Brian Easton is a research economist and statistician, whose academic appointments include a senior research fellowship at the Centre for Policy Research at Massey University and a professorial research fellowship at the Central Institute of Technology. His The Commercialisation of New Zealand will be reviewed in the next issue and he is currently writing Globalisation and a Welfare State. He is happy to supply a bibliography of the literature referred to in this review. 

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